Thursday, September 11, 2008

US DOT slows highway payments

Ken Simonson, Chief Economist at The Associated General Contractors of America reports this week that the federal Highway Trust Fund would not have enough money to make full payments to states for highway construction expenditures they had already incurred and submitted for reimbursement. DOT Secretary Mary Peters called on Congress to immediately pass a bill transferring $8 billion from the general fund. When the House passed such a bill in July, the White House had issued a veto threat. The New York Times reported on Sept. 6 that DOT “expects to have enough money to make all payments to the states for the second week of September but enough for only about 64% of the payments the third week, said Brian Turmail, an agency spokesman. Then, with a regular infusion of two weeks’ worth of gasoline-tax revenue from the Treasury, [DOT] will have enough money to make 88% of its payments in the fourth week of September—except that it will have to first make up payments it could not meet earlier in the month. Thus, as states wind down the busy summer construction season, their transportation officials can anticipate longer and longer delays in getting payments from Washington, Mr. Turmail said. State transportation officials expressed alarm. The money shortage will have ‘grave repercussions for the states, for hundreds of thousands of workers in the construction industry and the driving public,’ said John Horsley, executive director of the American Association of State Highway and Transportation Officials. Some AGC chapters reported that their state DOTs have already delayed contract awards.

State revenue shortfalls are leading some states to cut highway construction and other spending. The Washington Post reported this week, “Maryland transportation officials plan to announce today the deferral of about $1.1 billion in transportation [projects] in a $10.5 billion capital plan for the next six years. The announcement…is prompted by lagging revenues in a separate fund for transportation projects. Two of those revenue sources, the gas and titling taxes, have slowed considerably because of higher gas prices and slumping car sales.” In addition, “Budget Secretary T. Eloise Foster said she plans to recommend at least $250 million in spending cuts next month” to the Board of Public Works. “Just weeks after more than half of the states closed shortfalls in their 2009 budgets totaling $48 billion, the budgets in 13 of those states have fallen out of balance again,” the Center on Budget and Policy Priorities reported on Monday. “In the six of these 13 states that have made specific estimates, the new gaps total $4.4 billion, or 4% of their budgets….The 13 states facing new, mid-year shortfalls for fiscal year 2009 (which began on July 1 in most states) are Arizona, Connecticut, Florida, Georgia, Illinois, Massachusetts, Nevada, New Hampshire, New York, Ohio, South Carolina, Vermont, and Virginia.”

PSMJ Research Director Bill Fanning told me this week that the FHWA program pays bills due to states on a first in-first out basis, but only up to the amount of the cash balance in the trust fund.

This means delays in payments to contractors and A/Es will be a snowball slowdown as FHWA cumulatively delays from $0 to the $8 billion shortage.

We should begin to hear about this from A/Es about the end of November as the slowdown becomes noticeable. And the contractors (who have bigger bills) will start screaming long before the A/Es.

Fanning went on to say that Congress could fix the problem with the $8 billion transfer internally within DOT, but counting on Congress to do anything responsible is probably wishful thinking.